Manufacturing 'Orderliness' at the New York Stock Exchange

41 Pages Posted: 15 Apr 2014

See all articles by Stephen F. Diamond

Stephen F. Diamond

Santa Clara University - School of Law

Jennifer W. Kuan

California State University Monterey Bay, College of Business

Date Written: April 5, 2014

Abstract

Stock markets are often thought to follow a "random walk." Recent events like the 2010 "flash crash" suggest price changes are discontinuous. To resolve this apparent paradox, we analyze the institutional details of the stock market. The design of trading mechanisms varies across exchanges because of the different ownership forms of exchanges. Different ownership generates different incentives to produce orderliness, or price stability. The implementation of Reg. NMS relaxed a constraint on trading NYSE-listed shares and allowing us to examine this hypothesis. Spreads for NYSE-listed shares that traded on the Nasdaq widened by 10% compared to trades on the NYSE.

Keywords: Capital markets, nonprofits, NASD dealer market, NYSE specialist market, institutional design

JEL Classification: G10, G14, K22, L1, L3

Suggested Citation

Diamond, Stephen F. and Kuan, Jennifer W., Manufacturing 'Orderliness' at the New York Stock Exchange (April 5, 2014). Available at SSRN: https://ssrn.com/abstract=2424587 or http://dx.doi.org/10.2139/ssrn.2424587

Stephen F. Diamond

Santa Clara University - School of Law ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

Jennifer W. Kuan (Contact Author)

California State University Monterey Bay, College of Business ( email )

Seaside, CA 93955
United States

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